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Opinion: Conflicted over the Wall Street bailout

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Lawmakers have apparently persuaded the Bush administration to agree to several modifications in the Treasury Department’s proposed $700 billion buy-up of ‘distressed’ (read: buyer-repelling) assets from financial firms. These include worthwhile additions, such as independent oversight of the program, and politically necessary ones, such as restrictions on executive pay at the firms receiving help.

One provision that mystifies me, though, would require the government to receive warrants from the firms selling assets. The warrants would entitle the government to shares of the firms’ stock, so if the bailout led the company to prosper, the taxpayers could reap a share of that good fortune. This idea has been endorsed by people much savvier than I (granted, that’s not a small universe). But could somebody please explain why the government should have an ownership stake in firms that it regulates? I mean, assume it’s a bank that’s masking a shortage of capital by playing fast and loose with the asset values on its books. The public counts on the government to guard against that kind of shenanigans. But if regulators crack down, the bank’s shares -- and the value of the government’s warrants -- would almost certainly suffer, non? Isn’t that a huge conflict of interest? Or would the taxpayers be better off with a government that cheerleads financial-industry stocks than one that’s a vigilant regulator? I’m just asking here....

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